Nobody can deny that the buy to let market has been through plenty of upheaval over the past year or so, as the government has introduced a number of punitive changes that will undoubtedly require landlords to adjust their strategy in order to maintain investment yields.
However, buy to let investment remains an attractive prospect as the UK’s housing situation continues to drive enormous demand for rental property, while rent rises across the country.
Stamp duty surcharge, mortgage interest tax relief and more
Certainly, the introduction of a 3% stamp duty surcharge on second properties is hitting many landlords to the tune of thousands of pounds. In August, the Daily Telegraph reported that analysis from accounting firm Blick Rothenerg, had indicated that the Treasury has so far raised as much as £2 billion as a result of this tax, introduced in April 2016 (investors can calculate how much stamp duty they may have to pay by using the Commercial Trust Stamp Duty Calculator).
The reduction and eventual phasing out of mortgage interest tax relief is another measure that will impact many buy to let landlords, while the impact of Brexit on the UK housing market is yet to be fully realised.
In the meantime, global political uncertainty is causing ripples across the world’s stock markets, often having an adverse effect on investments.
However, whilst these factors may mean that buy to let is not the easy money it once was, it remains a resilient market and with strong returns, which are better than many other forms of investment.
The benefits of buy to let mortgage investment
At present, interest rates remain low, with the prospect of modest increases set by the Bank of England in the future, but very low probability of a dramatic rise.
Many buy to let mortgage landlords are taking advantage of the low interest rates, fixed and variable, for typically two years to five years and there are even 10 year fixed rates available, offered by many lenders.
Conversely, low interest rates will return low yields on many other investment products, such as bank savings products, which rely on these rates, while buy to let relies instead on rental income and capital growth.
The UK housing market remains in desperate need of more homes to satisfy demand, but existing building resources within the country are at stretching point. Therefore, whilst the government is promising to build a million new homes by 2020, it seems an unlikely outcome given the countless unfulfilled promises from previous, successive governments.
That in turn means prices remain high with many younger people unable to afford to take that first step on the property ladder. Consequently, demand for rental homes remains high and looks likely to be sustained over the coming years, offering opportunity for buy to let landlords.
The twin factors of increased rental demand and growing inflation have seen rental costs rise across the country, helping to sustain decent rental income yields. Recent figures show a national average yield of 3.3%, but in some areas of the country this peaks at over 10%.
The appeal of buy to let is perhaps best advertised by statistics. Since 2002 there has been a staggering increase in the number of Britons owning a second home.
Recent data from the Resolution Foundation indicated that between 2000 and 2002, 1.6 million people owned a second home in the UK. That figure leapt by a remarkable 30% between 2012 and 2014as the number rose to 5.2 million people.
The report indicates that those most likely to invest further in property are the baby boomer generation, aged between 52 and 71 years old, who are responsible for 52% of the wealth held in extra property and who perhaps most of all, are thinking of their retirement income.
Furthermore, recent data from Direct Line for Business indicates that confidence remains high among buy-to-let landlords in London and the South East, with 78% intending to invest further, while 63% view the completed HS2 project as likely to enhance property prices in the capital.
The picture is equally bright elsewhere in the UK, with Your Move data in September showing Scottish buy-to-let yields outperforming those in England and Wales, as rents continues to rise.
Andrew Turner, chief executive for Commercial Trust states: ‘I could not be more certain of a positive future for buy to let. It is true that life for UK landlords has been made immeasurably more difficult of late and profits have been hit. However, buy to let remains a profitable investment opportunity and I do not expect that to change.
‘Renting property is a business and as with any other business in the land, it is vital to adjust strategy to current and future market situations. Landlords have been doing this since the very beginning and with the help of specialists such as ourselves will continue to enjoy financial success.’